|OMB APPROVAL                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------
|OMB Number                       3235-0416
Expires                          March 31, 2007
Estimated average burden hours per response182

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

(Mark One)

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ______________

Commission File Number 0-17232

FACT CORPORATION

(Exact name of registrant as specified in its charter)

|Colorado                                                     |  | 84-0888594                          
|------------------------------------------------------------ |  | ------------------------------------
|State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification No.)

1530-9th Ave S.E.,

Calgary, Alberta T2G 0T7

(Address of principal executive offices)

(403) 693-8000

(Issuers telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X   No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No X

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes    No



APPLICABLE ONLY TO CORPORATE ISSUERS

17,154,406 common shares outstanding as of August 18, 2006



Transitional Small Business Disclosure Format:   Yes    No X







PART I - FINANCIAL INFORMATION



ITEM 1.   FINANCIAL STATEMENTS



|                                                     | Page  
|---------------------------------------------------- | ------
|                                                     |       
|Unaudited Consolidated Financial Statements          |       
|                                                     |       
|Consolidated Balance Sheets                          | 3 to 4
|                                                     |       
|Consolidated Statements of Operations                | 5     
|                                                     |       
|Consolidated Statements of Cash Flows                | 6 to 7
|                                                     |       
|Notes to Unaudited Consolidated Financial Statements | 8     



2





|FACT CORPORATION
Consolidated Balance Sheets                                                                 
|-------------------------------------------------------------------------------------------------------------
|                                                                                                             
|ASSETS                                                                                                       
|Current Assets                                                                                               
|Cash                                                                                                         
|Inventory                                                                                                    
|Accounts receivable                                                                                          
|Total Current Assets                                                                                         
|                                                                                                             
|Investment in Australian Oil and Gas                                                                         
|Investment in Capital Reserve Canada Ltd.                                                                    
|                                                                                                             
|Property and Equipment                                                                                       
|Intellectual property                                                                                        
|Office equipment and computers (net of accumulated depreciation of $ 29,973 ($28,471 as at December 31, 2005)
|Total Property and Equipment                                                                                 
|                                                                                                             
|Total Assets                                                                                                 
|                                                                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                         
|Current Liabilities                                                                                          
|Accounts payable and accrued expenses                                                                        
|Accounts payable (related parties)                                                                           
|Loans payable (related parties)                                                                              
|Current portion of long-term debt and acquisition cost                                                       
|Total Current Liabilities                                                                                    
|                                                                                                             
|Long Term Liabilities                                                                                        
|Acquisition cost payable                                                                                     
|Total Liabilities                                                                                            
|Commitments and contingencies                                                                                







The accompanying notes are an integral part of these unaudited financial statements



3





|FACT CORPORATION
Consolidated Balance Sheets                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                   
|Stockholders' Equity                                                                                                                                               
|Class A Common Stock - authorized 100,000,000 shares of no par value; 17,154,406 issued and outstanding as at June 30, 2006 and 17,196,367 as at December 31, 2005.
|Class A Common stock warrants                                                                                                                                      
|Accumulated deficit                                                                                                                                                
|Accumulated other comprehensive (loss)                                                                                                                             
|Total Stockholders' Equity                                                                                                                                         
|Total Liabilities and Stockholders' Equity                                                                                                                         







The accompanying notes are an integral part of these unaudited financial statements





4



|FACT CORPORATION
Consolidated Statements of Operations
(Unaudited)
|------------------------------------------------------------------
|                                                                  
|                                                                  
|Revenues                                                          
|Functional food premix                                            
|Consulting fees                                                   
|Rental income                                                     
|                                                                  
|                                                                  
|Costs and Expenses                                                
|Functional food premix                                            
|Italian Crème costs                                               
|Legal                                                             
|Consulting fees                                                   
|Fees settled by the issuance of shares                            
|Depreciation and amortization                                     
|Gain on disposition of assets                                     
|Administrative expenses                                           
|Write down investment in Texas T Petroleum Ltd.                   
|                                                                  
|Income (Loss) from operations                                     
|                                                                  
|Other income and expenses                                         
|Interest income                                                   
|Interest expense                                                  
|                                                                  
|                                                                  
|Provision for income taxes                                        
|                                                                  
|Net Income (Loss)                                                 
|                                                                  
|Net Income (Loss) per Common Share                                
|                                                                  
|Weighted Average Number of Common Shares Used in Calculation      
|                                                                  
|Other comprehensive income                                        
|Net Gain (loss)                                                   
|Foreign currency translation adjustment                           
|Unrealized profit (loss) on marketable securities                 
|Total other comprehensive income                                  

The accompanying notes are an integral part of these unaudited financial statements

5





|FACT CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
|------------------------------------------------------------------
|                                                                  
|                                                                  
|Cash From Operating Activities:                                   
|Gain (Loss) from continuing operations                            
|Reconciling adjustments                                           
|Depreciation and amortization                                     
|Equity in Texas T Petroleum Ltd                                   
|Services paid by Stock Issuance                                   
|Changes in operating assets and liabilities                       
|Accounts receivable                                               
|Prepaid expenses and deposits                                     
|Inventory                                                         
|Gain (loss) on sale of securities                                 
|Gain on sale of real properties                                   
|Accounts payable and accrued expenses                             
|Net Cash Flows From Operating Activities                          
|Cash From Investing Activities:                                   
|Proceeds from sale of securities                                  
|Acquisition of property and equipment                             
|Proceeds from sale of real property                               
|Disposition of investment in Texas T Petroleum                    
|Net Cash Flows From Investing Activities                          
|Cash From Financing Activities:                                   
|Proceeds from loans payable (related parties)                     
|Loan reductions                                                   
|Acquisition cost payable                                          
|Capital contribution by an officer                                
|Net Cash Flows From Financing Activities                          
|Foreign currency translation adjustment                           
|Net change in cash and cash equivalents                           
|Cash at beginning of period                                       
|Cash at end of period                                             

The accompanying notes are an integral part of these unaudited financial statements





6



FACT CORPORATION

Consolidated Statements of Cash Flows

Continued

(Unaudited)



|Supplemental disclosure of cash flow information: |   |        |   |          
|------------------------------------------------- | - | ------ | - | ---------
|Interest paid                                     | $ | 27,643 | $ | 94,773   
|Income taxes paid                                 | $ | -      | $ | -        
|                                                  |   |        |   |          
|Non Cash Transactions:                            |   |        |   |          
|Mortgages relieved by sale of properties          | $ | -      | $ | 1,915,278





The accompanying notes are an integral part of these unaudited  financial statements

7











FACT CORPORATION

Notes to Financial Statements for the three months ended June 30, 2006

(Unaudited  prepared by Management)





Note 1- Basis of presentation



The accompanying unaudited consolidated financial statements have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the financial statements for the year ended December 31, 2005 of FACT Corporation.



The interim financial statements present the balance sheet, statements of operations, stockholders' equity and cash flows of FACT Corporation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States.



The interim financial information is unaudited.  In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2006 and the results of operations, stockholders' equity and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature.  Interim results are not necessarily indicative of results of operations for the full year.

8



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



1.

Plan of Operation

At present, based on current operations, the Company does not have sufficient cash and liquid assets to satisfy its cash requirements on a monthly basis. While the Company does generate income from sales of functional premixes on a monthly basis, these proceeds are not sufficient to meet the Company's current monthly overhead, which includes the on-going business of the Company, FACT Group and two dormant subsidiaries. The Company will require approximately $4,750,000 to cover its anticipated overhead and operational needs, inclusive of inventory, for the upcoming twelve-month period.  Revenues generated from operations are expected to contribute $4,900,000 in gross revenues and are expected to be sufficient to meet all operational overhead for the coming twelve months.    While the Company has projected gross revenues from its food operations of approximately $4,900,000 over the upcoming twelve months, such projections are subject to numerous factors that are beyond our control. Projected operational costs and overhead of $4,750,000 include approximately $4,200,000 for inventory and premix costs associated with the Companys functional foods business and $550,000 in general operating expenses relating to the Company and all of its existing subsidiaries. The Company may be required to raise approximately $320,000 to meet its projected costs should it not be successful in achieving its projected gross revenues. The Company expects that it will be able to obtain additional equity and/or debt financing to meet this need.



The Companys budget of $550,000 in general operating expenses includes the expenditure of approximately $138,000 over the next twelve months on ongoing product refinement, technical support, the development of second and third generation functional formulations, including amounts paid to employees and consultants retained for the purposes of providing research and development support.



Included in the cash requirements noted above of $4,750,000 over the next twelve months is an amount of $355,000 with respect to the operations of FACT Group, exclusive of inventory requirements and forecasted costs of goods sold.  From the date of acquisition November 2001 to June 30, 2006, the Company has funded a total of $851,409 (net of associated interest charges) to FACT Group in respect of its ongoing operational expenses.



Should it be required, and if the Company is able to negotiate favorable terms, the Company may look to raise funds in excess of the current cash requirement by way of debt or equity financing in order to accelerate its growth.  The Company is currently assessing strategic joint ventures with complementary businesses in order to enhance and support its current operational objectives.



The Company anticipates that its subsidiary FACT Group will hire an additional one to three employees during the upcoming twelve months should the functional foods business meet projected operational and revenue targets. The Company will also look to retain one additional employee to assist in corporate development and financial operations.



Results of Operations



Comparison of six month periods ended June 30, 2006 and 2005



For the six month periods ended June 30, the Company incurred operating losses of $82,434 (2006) and realized gains from operations of $14,873 (2005). Fiscal 2006 results include an increase in revenues generated from the sale of function food premix from $354,473 (2005) to $558,261 (2006) as a result of the addition of a new customer account as well as increased sales to the Companys key customer. Additionally, the period ended June 30, 2006 reflects no revenues from Italian crème sales, consulting fees or rental income, as compared to cumulative sales from these three categories of $108,246 during the same period in the prior year.  This is a direct consequence of the following:  (1) the Companys divestiture of all commercial real properties in fiscal 2005 which resulted in the cessation of all rental income prior to the close of fiscal 2005; and (2) the suspension of the Companys sales efforts with respect to its whipped

9



topping line in early 2005 as a result of poor consumer response and product performance issues. Costs of goods sold relating to functional premix sales increased from $260,109 (2005) to $431,296 (2006), reflecting a decline in average net profit from product sales from 27% (2005) to 23% (2006).  This decline can be attributed to the need to offer increasingly competitive pricing to certain of the Companys customers, thereby reducing the Companys gross margin, but achieving additional sales volumes and gross revenues.      The costs of goods sold associated with the whipped topping products decreased over the comparative periods from $152,322 (2005) to $11,276 (2006), as a result of the discontinuation of the product line.  2006 costs associated with the whipped topping relate to disposal of inventory.   Legal fees increased from $4,735 (2005) to $22,210 (2006), as the Company retained counsel to investigate potential causes of action and file suit against certain defendants on these causes of action during the current period.  Consulting fees and services settled by the issuance of shares decreased greatly from a combined total of $214,516 (2005) to $45,059 (2006) as the Company negotiated a new, less costly contract for investor relations and promotional services during the current period, and also reduced payments to certain key management personnel.  There were no services compensated with shares during the current period.  Administrative expenses associated with operations also decreased greatly from $251,138 (2005)  to $85,336 (2006) due to the Companys efforts to reduce overhead, streamline duplicative operational costs and the divestiture of certain unproductive assets.



In fiscal 2005, there was a non-recurring, non-operating expense totaling $112,510.  This expense reflects the write down of $112,510 upon divestiture of the Companys interest in a private corporation.



There was also a non-recurring, non-operating gain of $739,120 during the six month period ended June 30, 2005.  This amount reflects the capital gain reported on the sale of certain of the Companys real properties.



Depreciation and amortization costs also declined from $38,234 (2005) to $1,502 as a result of the Companys divestiture of its commercial real properties in fiscal 2005.



Interest expenses and fees are substantially decreased in 2006 as the Company was able to retire various loans and mortgages upon the sale of its commercial real properties during fiscal 2005 and thereby alleviate the associated debt serving obligations.  Additionally, during the period the Company made a substantial reduction to debts owing to related parties, further reducing the associated interest expense.



Results for the two completed six month periods were a net loss of $82,434 (2006) as compared to a gain of $14,873 (2005).



Liquidity and Capital Resources



Summary of Working Capital and Stockholders' Equity



As of June 30, 2006, the Company had negative working capital of $1,261,486 and negative Stockholders' Equity of $5,317 compared with negative working capital of $1,165,256 and Stockholders' Equity of $68,558 as of December 31, 2005. The Companys negative working capital has increased as a result of the reduction of certain current liabilities, reducing the Companys available cash, as well as an increase to accounts payable.



Liquidity



The Company anticipates it may require approximately $320,000 over the next twelve months to fully implement its existing business plan, which includes significant marketing efforts, the continued development and refinement of functional food formulations and products, a consumer awareness and public relations campaign, new initiatives to attract a broader customer base, expanded management resources and support staff, and other day to day operational activities.  The Company may require additional funds over the next three years to assist in realizing its goals should it not achieve anticipated bench marks over the 2007, 2008 and 2009 fiscal years.  The amount and timing of additional funds required can not be definitively stated as at the date of this report and will be dependent on a variety of

10



factors.   As of the filing of this report, the Company has been successful in raising funds required to meet our existing revenue shortfall for the funding of our operations. Funds have been raised through private loans, equity financing and conventional bank debt, as well as through the sale of certain active and passive investments. The Company anticipates revenues generated from its functional food business will greatly reduce the requirement for additional funding; however, we can not be certain the Company will be successful in achieving revenues from those operations. Furthermore the Company cannot be certain that we will be able to raise any additional capital to fund our ongoing operations.



Sources of Working Capital



During 2006 the Company's primary sources of working capital have come from revenues generated from our functional foods business and the net proceeds from:

*

$24,942 in the collection of certain outstanding accounts receivable relating to rental income due from prior periods;

*

$66,205 as a revolving line of credit from certain related parties; and,

*

$350,000 from the proceeds of an agreement entered into regarding the assignment of a convertible note with Capital Reserve Canada Limited.

The Company is also aggressively pursuing the liquidation of its remaining passive investments..



ITEM 3. CONTROLS AND PROCEDURES



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.



We carried out an evaluation, under the supervision and with the participation of our management, including our President and acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 as of the end of period covered by this report.  Based upon the foregoing, our President and our acting Chief Financial Officer concluded that our disclosure controls and procedures are effective.



There were no changes in our internal control over financial reporting identified in connection with the evaluation referred to in the immediately preceding paragraph that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect, our  internal control over financial reporting.



PART II  OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS



On May 26, 2006, FACT Group filed a complaint in the Superior Court of the State of New Jersey, Chancery Division, Monmouth County (the Complaint) against Ore Enterprises LLC, d.b.a. Smartblendz, Avigdor Orr and Michael Baum.  In the Complaint, FACT Group alleges, among other things, that Baum, a former consultant to FACT Group, and Orr have misappropriated certain of FACTs proprietary trade secrets in order to recreate FACTs premixes and other baked-goods products to be sold in direct competition with FACT.  The Complaint further alleges intentional interference with existing and prospective economic advantage, breach of contract, breach of duty of loyalty and breach of the covenant of good faith and fair dealing.  FACT Group is seeking (1) to enjoin and restrain Baum, Orr and Smartblendz from using or disclosing the trade secrets of FACT; (2) to impose a constructive trust in regard to all profits obtained by the use of the trade secrets; (3) for other compensatory, consequential and punitive

11



damages; (4) for reasonable attorneys fees and costs of the suit; and, (5) other further relief as the court may deem proper.    On or about August 10, 2006, defendants Ore Enterprises, Orr and Smartblendz filed an Answer and Counterclaim denying FACTs allegations. In the counterclaim, they allege claims of intentional interference with contractual relationships, intentional interference with existing and prospective economic advantage and defamation/slander and libel.  FACT is currently preparing an answer to the counterclaim, in which it will deny all allegations contained therein.   Defendant Michael Baum has not yet filed an answer to FACTs Complaint; rather, he has filed a motion to compel arbitration of FACTs claims against him pursuant to a former consulting agreement he had with FACT.  FACT has opposed that motion and the court is set to hear it on September 8, 2006.  No other proceedings are currently scheduled.  Preliminary discovery has commenced.



ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable



ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



ITEM 5.

OTHER INFORMATION



During the quarter ended June 30, 2006 the Company retained a new Chief Operating Officer to assist with the implementation of the Companys plans to expand its customer base.  Timothy J. Murphy, a Philadelphia-based veteran of the food and beverage industry, agreed to become FACTs new COO, and will begin familiarizing himself with the Companys operations immediately.



12





ITEM  6.

EXHIBITS



Exhibit Index



|REGULATION S-B NUMBER | EXHIBIT                                                                                                                      |  | REFERENCE                                                                                                                                                             
|--------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1                   | Articles of Incorporation, as amended                                                                                        |  | Incorporated by reference to the Exhibits previously filed with Capital Reserve Corporations Annual Report on Form 10-KSB for the fiscal year ended December 31, 1990
|3.2                   | Amended Bylaws                                                                                                               |  | Incorporated by reference to the Exhibits previously filed with Capital Reserve Corporations Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994
|3.3                   | Articles of Amendment to Articles of Incorporation, filed with the State of Colorado Secretary of State on November 26, 2001 |  | Incorporated by reference to the Exhibits previously filed with FACT Corporations Annual Report for Form 10-KSB for the fiscal year ended December 31, 2002 herewith 
|3.4                   | Articles of Amendment to Articles of Incorporation, filed with the State of Colorado Secretary of State on February 8, 2002  |  | Incorporated by reference to the Exhibits previously filed with FACT Corporations Annual Report for Form 10-KSB for the fiscal year ended December 31, 2002 herewith 
|10.1                  | Fourth Amendment to the Share Exchange Agreement dated February 2, 2004.                                                     |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.             
|10.2                  | Amended and Restated Shareholders Agreement dated February 2, 2004                                                           |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.             
|10.3                  | Mortgage between FACT Corporation and 948783 Alberta Inc. dated March 17, 2004                                               |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.             

13



|10.4 | Offer to Purchase between FACT Corporation and Calfrac Well Services Ltd. dated December 21, 2004                            |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.
|---- | ---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5 | Removal of Conditions and Amending Agreement dated February 25, 2005 between FACT Corporation and Calfrac Well Services Ltd. |  | Incorporated by reference to the Exhibits previously filed with the Registrants Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004.



|31 | Section 302 Certification- Chief Executive Officer                                                                    |  | Filed herewith
|-- | --------------------------------------------------------------------------------------------------------------------- |  | --------------
|32 | Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith





SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



FACT CORPORATION





By:/s/ Jacqueline R. DanforthName: Jacqueline R. Danforth
Title: President. Principal Executive, Financial and Accounting Officer
Date: August 21, 2006





14